What is the value of an asset? That is the ultimate financial question, the equivalent of Hamlet’s “To be or not to be.” Of course, we all “know” the answer: the present value of its future cash flows. Push an expert for clarification, and the response is, “take the future cash flows and discount them with the appropriate rate.”

Unfortunately, those answers rely on two ill-defined concepts (“future cash flows” and “appropriate rate”), a faulty analogy, and a repudiation of statistics.

History of a Curious Analogy

Joel Dean, an American economist who died in 1979 and made important contributions to … Read more

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